Yesterday, we reported on the ‘Smoked by Windows Phone’ controversy which rapidly found its way throughout the entire Internet. Now, Microsoft has finally issued a proper response and apology, likely due to the colossal PR catastrophe that transpired as a result of Sahas Katta blogging about the incident.

Microsoft Evangelist Ben Rudolph tweeted, stating that he had a laptop, phone, and apology to offer to Katta. “Hey @sahaskatta , @Microsoftstore & I want to make things right. So I’ve got a laptop & phone (& apology) for you. Email me!”

While it was the appropriate response in terms of PR, due to the nature of this story — primarily its rapid spread throughout practically every technology blog, even finding its way to the front page of Reddit — Microsoft ended up in a lose-lose situation. If they stood by their reported Windows Phone victory, they would have been heavily criticized for hosting a rigged competition. But, in providing Katta the laptop (and a bonus phone), people attribute the company’s apology to the situation being such a PR nightmare (i.e Microsoft would have done nothing if it didn’t become such a news headline.) But, it t was really the best they could’ve done.

The big question is, where does this leave the Smoked by Windows Phone campaign now? Overnight, the enthusiasm surrounding the campaign was essentially crushed. The campaign went from being fun and admirable — as when Rudolph lost, he admitted it and issued the prize money to contestants with no quips — to being thought of as a rigged-from-the-beginning “competition” by much of the Internet, or as a casino, where the house always wins.

So, now that Katta received his goodies, what is he doing with them? He announced in a new blog post on Monday that he plans to auction off both the laptop and phone to charity, donating 100% of the proceeds.